Demand for strata office space outstrips supply in Vancouver

If you worked at a big company in Vancouver about 80 years ago, chances are the owners of the business owned the building, too.

In the decades that followed, institutional investors such as real estate investment trusts, corporate landlords and other investors took a major grip on big city North American office space.

“You saw institutional investors say, ‘why can’t we own the real estate and lease it to IBM or Nabisco or GM or whatever,’” said Ross Moore, a broker with Cresa in Vancouver. “Now we’re going back to ownership.”

Moore and other observers say Metro Vancouver — with its extremely high property values, low vacancy rates and creative development strategies — is again seeing strata office development entering the main stream.

Strata office projects undergo include 34/W7, a strata office and light industrial building by Chard Development. It’s one of three strata building projects on the go in the Mount Pleasant area. The 48,000-square-foot, four-storey building offers strata units for sale with occupancy expected this year.

Another project in early stages is the 375,000-sq.-ft, 30-storey office Bosa tower at 320 Granville St. will be sold half as strata office units with the rest for lease. The strata units at the Bosa tower are fetching unprecedented high prices, reportedly reaching over $2,000 a square foot in some cases.

Interest from business owners to control and invest in their own office units and building is rising, but that doesn’t mean supply can keep up, said Matt Carlson, a vice-president with Colliers International in Vancouver.

He said the strata office trend remains marginal but is gaining some steam.

“If we look at downtown Vancouver, there’s about 30 million square feet of office space, and I can count on one hand the number of (strata) buildings that are actually available for purchase,” he told Postmedia.

He said there are only a few strata projects expected over the next five years, “which will increase the relative scarcity given the heightened demand from owner occupiers for these types of offerings.”

The local downtown class-A office market, which continues to tussle with a five per cent vacancy rate, is evolving for a couple of reasons, Carlson said.

“Certainty, I think, is a big one,” he said, explaining that smaller businesses requiring 3,000 to 6,000 sq. ft want to be able to control their own spaces, while building equity as a secondary profit stream.

“Having an uncertain future after five, seven or 10 years when that lease expires is a little bit of a scary thought,” Carlson said.

The addition of more strata office started about two or three years ago, he said.

Land prices had gone up and for developers to justify investments, strata made a little more sense than leasing,” he said. “We’re still in a very low interest rate environment. Not quite as low as it was a year or a year-and-a-half ago, but still very low comparatively.”

Cresa’s Moore, who specializes in tenant advisory services, said leasable office remains the lifeblood of the Vancouver office stock.

“Most tenants are still looking to lease,” he said. “Strata was very much at the margins let’s just say 10 years ago, but it is becoming more mainstream.”

Over the first quarter of 2018, the downtown office market absorbed about 23,000 sq. ft, according to Moore.

“That’s obviously not a lot,” he said, adding that the suburban market had negative absorption in the first three months of the year, while secondary Vancouver markets such as Broadway and Mount Pleasant remained static.

“It’s been interesting,” he said. “I’ve had a few tours recently where … the comment has been made, ‘you know what? We’re not going to grow the Vancouver office anymore. We’re probably going to increase our Toronto office maybe at the expense in Vancouver.’”

He said there appears to be a general feeling in the leasing market that Vancouver is getting too pricey.

“You’re hearing more and more stories about rents in the high $40 (a square foot) and I think in isolated incidences, we’re talking about $50,” Moore said.

“That’s on top of the price of housing and residential rents and then we’ve had some tax changes,” he said. “The list goes on. I think there’s a bit of slowdown in the margins.”

Comments

Postmedia is pleased to bring you a new commenting experience. We are committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. Visit our Community Guidelines for more information.